That first paycheck may be the first time you receive a sum that size – and you’ll be getting these every two weeks! Don’t let your head swell – decide now to make smart spending and saving decisions so that your paycheck can set you free from money worries, not create them.
Work out a Rough Budget
Your biggest expenses will most likely be housing and possibly school loans. Make sure that housing and debt do not add up to more than half of your take-home income.From there, your goal is to live below your means. Make room in your budget for the things you need and some saving (more about that below). Then, and only then, if money is left over, spend on your wants. If this doesn’t come to you naturally, there are a lot of tools out there to help you build a budget and track your expenses. Mint.com is a free online program, but, (nothing’s free) the real price is that advertisers see your information and you’re targeted for certain ads. You could purchase a product like Quicken or build your own budget in Excel.
Instead of thinking of it as a budget – think of it as a Spending & Saving Plan.
The “Saving” Portion of Your Plan
Don’t just spend…Save! There are three types of saving you need to be doing:
A Freedom Fund
Your new earning power should set you free from money worries, not tie you down. But, unexpected expenses can decimate a paycheck, so plan for the unexpected with a Freedom Fund. A fully funded Freedom Fund holds 3 – 6 month’s worth of income to tide you over in a true emergency. Start yours by stashing $1,000 to $2,000 in a savings account or money market fund.
I know you think you don’t need to do this now, but, you’ll need to save a lot to retire comfortably and it’s so much easier to start now (here’s why – Things Only Get More Complicated). If you have a retirement plan at work – get on board! Most of these plans offer a company match. That means that for every dollar you put in, your employer matches it. That’s free money you can’t pass up.
Aim to put away 10% of your salary per year towards retirement – that can be made up of your investment plus the company match (see how important that free money is?).
If you don’t have a plan at work open a Roth or Traditional IRA. Invest the maximum of $5,500 annually to put your future on track.
Now you also need to put money away for all of those things you want to do in the short-term like a vacation, new couch, or maybe even a down payment on a house. If you have a specific goal, determine how much you need to save to reach it. No goal? Aim to save an additional 5% per month.
Saving is easier when you don’t have to think about it. Build your Freedom Fund and other savings by having money automatically invested with each paycheck. You can either ask your employer to split your paycheck between a savings account and checking account or have your bank move money automatically from your checking account into your savings account. Sounds complicated? It’s not that bad and the banks and employers do it all the time – just ask!
Get a Bill Paying Process
You’ll owe more people than ever, so make sure you keep it all straight and avoid late fees or finance charges. Try our Power of One program – all bills come in to one place, get paid at one time, from one account and are filed in one location.
Don’t waste time paying bills the moment they come in – you’ll never be able to keep track of all of them. And, don’t have some come to your email while others are texted to you – get them in one place so you don’t miss a thing.
Craft your Credit Rating
Building a better credit score will save you thousands down the road with lower interest rates when you go for that mortgage or car loan. Start today with one credit card, pay this off in full every month. Pay any student loans, or even rent, on time.Then, check your credit report and score at least once per year, using the government mandated site annualcreditreport.com. Review your report and make any corrections necessary as quickly as possible.
Choose the Right Bank
Your bank will be your business partner, so find the right one. You’re looking for lots of ATMs near where you work. live, and play, that charge no fee. You’ll also want no-fee checking – so make sure that you can meet the bank’s rules for minimum balance or number of transactions. Don’t forget credit unions and online banks which sometimes offer better packages and higher interest rates on accounts.
Think twice before moving back in with Mom and Dad
Things will never be the same and it may be difficult to move back home after living for so long independently. You’ll make your own mistakes and learn faster out on your own.
Get Financially Literate
Overwhelmed? Afraid you lack the discipline to save? Find a fee-only Certified Financial Planner professional who can help you with unbiased advice.
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